Dep't of Transp. v. Adams Outdoor Advert. of Charlotte Ltd. P'ship

IN THE SUPREME COURT OF NORTH CAROLINA
No. 206PA16
Filed 29 September 2017
DEPARTMENT OF TRANSPORTATION
v.
ADAMS OUTDOOR ADVERTISING OF CHARLOTTE LIMITED PARTNERSHIP
On discretionary review pursuant to N.C.G.S. § 7A-31 of a unanimous decision
of the Court of Appeals, ___ N.C. App. ___, 785 S.E.2d 151 (2016), reversing an order
entered on 27 August 2014 by Judge Lisa C. Bell in Superior Court, Mecklenburg
County. Heard in the Supreme Court on 21 March 2017.
Joshua H. Stein, Attorney General, by Kenneth A. Sack, Assistant Attorney
General, for plaintiff-appellee.
Van Winkle, Buck, Wall, Starnes and Davis, P.A., by Craig D. Justus, for
defendant-appellant.
MARTIN, Chief Justice.
In this appeal, we consider whether the Court of Appeals erred in reversing
the trial court’s order addressing the appropriate measure of damages in a
condemnation action. The North Carolina Department of Transportation (DOT)
condemned a leasehold interest held by Adams Outdoor Advertising of Charlotte
Limited Partnership (Adams Outdoor). Adams Outdoor owned a billboard situated
on the leasehold and rented out space on the billboard to advertisers. At the time of
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the taking, the billboard did not conform to city or state regulations, but Adams
Outdoor held permits that allowed for the billboard’s continued use. We must address
which Article of Chapter 136 of our General Statutes applies to this condemnation
proceeding and which evidence is admissible to help the trier of fact determine the
fair market value of Adams Outdoor’s condemned leasehold interest. We affirm the
decision of the Court of Appeals in part and reverse it in part.
I. Background
Defendant Adams Outdoor is an outdoor advertising company that rents out
advertising space on billboards. In October 2001, Adams Outdoor acquired a
billboard at the corner of Sharon Amity Road and Independence Boulevard in
Charlotte, North Carolina. Approximately 85,000 vehicles drove by this location each
day. Adams Outdoor rented out advertising space on the billboard and collected
payments from the advertisers.
The billboard, which was constructed in 1981, was 65 feet tall and had two
back-to-back sign face displays of approximately 14 feet by 48 feet each, or 672 square
feet of advertising space per face. The billboard weighed approximately 30,000
pounds, had a steel monopole support, and was attached to the land by a foundation
that was dug 18 feet into the ground, 6 feet around, and backfilled with concrete. The
billboard was a legal height when it was built, but by the time Adams Outdoor
acquired it, it no longer conformed to revised DOT height regulations. Because the
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billboard already existed when the regulations changed, Adams Outdoor received a
permit that allowed it to continue to use the billboard even though it was
nonconforming.
At the same time that it acquired the billboard, Adams Outdoor acquired the
lease for the lot on which the billboard was located. When Adams Outdoor acquired
the lease, the lease was operating on a year-to-year basis. In 2006, Adams Outdoor
negotiated a new lease with the landowner. The new lease term started in August
2007 and ran for ten years, and the lease also provided that this term would be
automatically extended for another ten years. After the automatically extended term,
the parties had the option to let the lease continue to automatically renew for
successive ten-year terms, but either party could decline to renew the lease with
ninety days’ notice before any given renewal. The lease permitted Adams Outdoor to
use the lot for outdoor advertising purposes only and provided that Adams Outdoor
could remove the billboard either before or within a reasonable time after the lease
expired or was terminated. During the existence of the lease, Adams Outdoor, but
not the landlord, could cancel the lease at any time if one of a small number of specific
circumstances arose.
This lease was recorded in the Mecklenburg County Register of Deeds Office.
While the recorded lease was in effect, the City of Charlotte also changed its
regulations in a way that made the billboard nonconforming. As with the change in
DOT’s regulations, the billboard was grandfathered in as a nonconforming billboard,
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and Adams Outdoor received a permit for its continued use.
Plaintiff DOT purchased the fee simple interest in the parcel of land on which
Adams Outdoor’s billboard stood. In December 2011, DOT filed a civil action and
declaration of taking of Adams Outdoor’s interest in the property “for public use in
the construction of [a] . . . highway project.” DOT hired an appraiser to estimate the
value of the leasehold interest. To estimate this value, the appraiser used the “bonus
value” approach, which compares the rent stipulated in the lease to the fair market
rental value of that lease. The appraiser concluded that, because Adams Outdoor
was paying a higher rent for this property than it paid in what the appraiser
considered to be reasonably similar leases, the lease had negative value and just
compensation was zero. Adams Outdoor did not agree with this assessment, and both
parties moved for a section 108 hearing to determine the issues raised by the
pleadings, including whether a taking had occurred and, if so, the extent of that
taking; the proper classification of the billboard; the proper way to determine the
amount of compensation due to Adams Outdoor; and whether certain evidence was
admissible to help determine the fair market value of the leasehold interest.1 The
trial court granted these motions and held the section 108 hearing.
The trial court’s findings of fact after the hearing included, among other things,
1 The purpose of a section 108 hearing is to allow a judge to “hear and determine any
and all issues raised by the pleadings other than the issue of damages.” N.C.G.S. § 136-108
(2015).
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that “[b]ecause of the nonconforming nature of the Billboard, and as a consequence of
the highly restrictive requirements for new billboard locations, the Billboard could
not be moved in its entirety and relocated”; that Adams Outdoor “earned substantial
rental income from leasing space on the Billboard to advertisers”; that “[t]he
Billboard and its outdoor advertising use is essentially self-operating as rental
property for advertisers to display their messages to the intended viewing audience”;
that “[b]ecause Adams possessed a valid State permit for the Billboard, neither the
City of Charlotte nor any other local regulatory authority could require its removal
by way of regulations . . . without paying just compensation”; and that “DOT’s expert
. . . was directed by the DOT to specifically exclude the value of the outdoor
advertising in determining his opinion on just compensation.”
The trial court then concluded that, “[b]ecause the DOT caused the removal of
Adams’ nonconforming outdoor advertising property interests . . . by way of
condemnation, [Article 11 of Chapter 136] is applicable and controlling in setting the
conditions of measuring just compensation.” The trial court therefore ordered that
the monies that DOT owed to Adams “must include the value of the outdoor
advertising, taking into account the lease portfolio (including any reasonable
expectation of renewal), the physical structure, and the accompanying permits.” The
trial court also concluded that DOT’s bonus value method was “improper” and should
be excluded.
DOT appealed, and the Court of Appeals reversed. Dep’t of Transp. v. Adams
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Outdoor Advert. of Charlotte Ltd. P’ship, ___ N.C. App. ___, ___, 785 S.E.2d 151, 161
(2016). The Court of Appeals determined that the controlling statutory framework
was Article 9 rather than Article 11 of Chapter 136 of the North Carolina General
Statutes. Id. at ___, 785 S.E.2d at 155. The Court of Appeals also held that the
billboard was noncompensable personal property, and that the alleged loss of revenue
from renting advertising space, the permits issued to defendant, and the option to
renew the lease were not compensable property interests. Id. at ___, 785 S.E.2d at
157-60. Finally, the Court of Appeals reversed the trial court’s order excluding bonus
value method evidence because, it said, that part of the order was based on the
“erroneous premise” that the billboard was “a permanent leasehold improvement”
instead of personal property. Id. at ___, 785 S.E.2d at 160-61.
Adams Outdoor petitioned this Court for discretionary review, and we granted
its petition. We must decide (1) whether the Court of Appeals erred in its conclusion
that the fair market value provision in Article 9, not Article 11, governs this
condemnation proceeding; (2) whether the value that the billboard added to that of
the leasehold interest should be considered in determining the fair market value of
that interest; (3) whether the income derived from renting out advertising space
should be considered in determining the fair market value of the leasehold interest;
(4) whether the fact that permits had been issued to Adams Outdoor for continued
use of the billboard should be considered in determining the fair market value of the
leasehold interest; (5) whether the automatic renewal of the lease and the options to
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renew the lease should be considered in determining the fair market value of the
leasehold interest; and (6) whether DOT’s bonus value method evidence should be
considered in determining the fair market value of the leasehold interest.
This Court reviews a trial court’s findings of fact to determine whether they
are supported by competent evidence and “whether the findings of fact support the
conclusions of law.” State v. Biber, 365 N.C. 162, 167-68, 712 S.E.2d 874, 878 (2011).
This Court reviews conclusions of law de novo. E.g., id. at 168, 712 S.E.2d at 878. It
also reviews questions of statutory interpretation de novo. E.g., Hammond v. Saini,
367 N.C. 607, 609, 766 S.E.2d 590, 592 (2014).
II. Analysis
1. The controlling statutory scheme
Using its power of eminent domain, the government may take private property
for public use. State v. Core Banks Club Props., Inc., 275 N.C. 328, 334, 167 S.E.2d
385, 388 (1969). When the State takes private property for public use, “the owner
must be justly compensated.” Dep’t of Transp. v. M.M. Fowler, Inc., 361 N.C. 1, 4,
637 S.E.2d 885, 889 (2006). The possessor of a recorded leasehold interest is likewise
entitled to just compensation when the State takes that interest. See Givens v.
Sellars, 273 N.C. 44, 50, 159 S.E.2d 530, 536 (1968) (citing 26 Am. Jur. 2d Eminent
Domain § 79 (1966)); see also 26 Am. Jur. 2d Eminent Domain § 138 (2014) (“A
leasehold may be classified as ‘property’ subject to the Takings Clause of the U.S.
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Constitution’s Fifth Amendment.”).
Under the eminent domain power set forth in Article 2 of Chapter 136, DOT
has the right to “acquire by gift, purchase, or otherwise . . . any road or highway, or
tract of land or other property whatsoever that may be necessary for a State
transportation system and adjacent utility rights-of-way.” N.C.G.S. § 136-18(2)(e)
(Supp. 2016). When DOT acquires property by condemnation, Article 9 of Chapter
136 sets out the appropriate measure of damages to which the owner of condemned
property is entitled. Id. § 136-112(2) (2015). Under this Article, the measure of
damages when DOT takes an entire tract of land is “the fair market value of the
property at the time of taking.” Id.
Under the eminent domain power set forth in Article 11 of Chapter 136, titled
“Outdoor Advertising Control Act,” DOT also has the power “to acquire by . . .
condemnation all outdoor advertising and all property rights pertaining thereto
which are prohibited under the provisions of G.S. 136-129, 136-129.1 or 136-129.2,
provided such outdoor advertising is in lawful existence on the effective date of this
Article.” Id. § 136-131 (2015). Under Article 11, however, the measure of damages
when the outdoor advertising owner does not own the underlying fee interest in the
property is “limited to the fair market value . . . of the outdoor advertising owner’s
interest in the real property on which the outdoor advertising is located and such
value shall include the value of the outdoor advertising.” Id. (emphasis added).
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Adams Outdoor argues, and the trial court agreed, that compensation for the
leasehold interest should be measured according to Article 11, not Article 9. If section
136-131 of Article 11 controls in this case, then the fair market value of the leasehold
interest would necessarily include the value of the outdoor advertising.
In statutory interpretation, we first look at the statute’s plain meaning. “When
the language of a statute is plain and free from ambiguity, expressing a single,
definite and sensible meaning, that meaning is conclusively presumed to be the
meaning which the Legislature intended, and the statute must be interpreted
accordingly.” State Highway Comm’n v. Hemphill, 269 N.C. 535, 539, 153 S.E.2d 22,
26 (1967) (quoting State ex rel. Long v. Smitherman, 251 N.C. 682, 684, 111 S.E.2d
834, 836 (1960)); accord Falk v. Fannie Mae, 367 N.C. 594, 602, 766 S.E.2d 271, 277
(2014). Here, the statute gives DOT the power “to acquire by purchase, gift, or
condemnation all outdoor advertising and all property rights pertaining thereto
which are prohibited under the provisions of G.S. 136-129, 136-129.1 or 136-129.2.”
N.C.G.S. § 136-131 (emphasis added). These provisions all provide limitations on the
construction or maintenance of an outdoor advertising device. Id. §§ 136-129, -129.1,
-129.2 (2015). The explicit reason for enacting the Outdoor Advertising Control Act,
moreover, was “to provide and declare . . . a . . . statutory basis for the regulation and
control of outdoor advertising.” Id. § 136-127 (2015). Thus, Article 11 does not give
DOT the power to condemn any billboard (along with its related property rights) for
any reason. It gives DOT the power to condemn a billboard specifically when DOT is
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condemning the billboard because it is prohibited by Article 11.
Here, though, DOT condemned the leasehold interest to widen a highway, not
because the billboard that sat on the fee was nonconforming. DOT’s authority to do
this is found in N.C.G.S. § 136-18(2)(e), which gives DOT the power to condemn
property when condemnation of that property is necessary for a state road or
highway. DOT therefore was not exercising its authority under Article 11 to acquire
prohibited outdoor advertising and all related property rights by condemnation; it
was exercising its authority under N.C.G.S. § 136-18(2)(e) to condemn property in
order to widen a highway. After all, even if the billboard had been conforming, DOT
still would have condemned the leasehold interest because it needed the property for
its highway-widening project. So the fair market valuation provision specific to
Article 11 does not govern this condemnation proceeding; the general fair market
valuation provision in Article 9 does instead.2 But because Article 9 still requires
compensation for the fair market value of the property interest taken, DOT has to
compensate Adams Outdoor for the fair market value of its leasehold interest.
2 Article 9 does not specify the measure of damages where, as here, DOT purchases a
tract of land and then condemns a leasehold interest in that land. Section 136-112 is the only
provision in Article 9 specifying the measure of damages when DOT condemns property. This
provision discusses the appropriate measure of damages when DOT condemns a partial tract
of land versus an entire tract of land. See N.C.G.S. § 136-112(1), (2). Because DOT
condemned Adams Outdoor’s entire property interest—that is to say, because it condemned
Adams Outdoor’s leasehold interest in an entire tract of land—subsection 136-112(2) applies
here.
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2. The outdoor advertising structure (the billboard)
In a proceeding to determine the fair market value of property under Article 9,
“[a]ll factors pertinent to a determination of what a buyer, willing to buy but not
under compulsion to do so, would pay and what a seller, willing to sell but not under
compulsion to do so, would take for the property must be considered.” M.M. Fowler,
361 N.C. at 17, 637 S.E.2d at 896 (alteration in original) (quoting City of Charlotte v.
Charlotte Park & Recreation Comm’n, 278 N.C. 26, 34, 178 S.E.2d 601, 606 (1971)).
In other words, the fair market value is the price to which a willing buyer and a
willing seller would agree. So the question here is whether a billboard owned by
Adams Outdoor, and situated on the site of Adams Outdoor’s leasehold interest,
would be a factor that a willing buyer and a willing seller would consider when
agreeing on the price of that leasehold interest. We are not considering the fair
market value of the physical billboard structure as compensable property; we are
considering only whether any value that the presence of the billboard adds to the
value of Adams Outdoor’s leasehold interest should be a factor in determining the
fair market value of that interest.
The lease here permitted Adams Outdoor to use the property only “for the
purpose of erecting, operating, maintaining, repairing, modifying and reconstructing
outdoor advertising structures.” And, although Adams Outdoor could cancel the lease
during the first twenty years of the lease term only under limited circumstances,
these circumstances included if the view of the billboard was obstructed, if the
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property was no longer suitable for the billboard, or if the value of the billboard was
substantially diminished. These facts show that the value of the leasehold interest
was inextricably tied to the value that the billboard added to it.
The value that the billboard added to the leasehold would not just come from
rental income, which we discuss separately below. It would also come from the
inherent value of the billboard’s presence on the property: that is, from the potential
to rent it out to advertisers even if it is not currently being used in that way, and from
the ability to use the billboard to communicate messages to an audience of
approximately 85,000 vehicles per day. Certainly a willing buyer who is purchasing
a leasehold that can be used only for outdoor advertising purposes would consider
whether the property actually had a billboard on it in determining the price that he
or she was willing to pay for the leasehold interest. And certainly a seller who owns
a grandfathered-in nonconforming billboard on a leasehold that can be used only for
outdoor advertising purposes would consider the presence of that billboard on it in
determining the price for which he or she was willing to sell the leasehold interest.
We therefore hold that evidence concerning the value that the billboard added to the
leasehold interest is admissible to help the trier of fact determine the fair market
value of that interest.
The Court of Appeals concluded that the billboard cannot be considered in this
condemnation action because, as a trade fixture, it is noncompensable personal
property. A trade fixture is a fixture that is attached to land by agreement between
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a landlord and tenant for use in exercising a trade. Stephens v. Carter, 246 N.C. 318,
320-21, 98 S.E.2d 311, 312-13 (1957). It may be removed after the tenancy and
belongs to the tenant as personal property. Id. Here, Adams Outdoor’s billboard was
attached to the land for the purpose of conducting an outdoor advertising business,
and Adams Outdoor’s lease states that “[a]ll Structures erected by or for the
Lessee . . . shall at all times be and remain the property of the Lessee and may be
removed by the Lessee . . . , notwithstanding that such Structures are intended . . .
to be permanently affixed to the Property.” This language clearly indicates that the
parties agreed the billboard would be treated as a trade fixture that would remain
the personal property of Adams Outdoor. So we agree with the Court of Appeals that
this billboard was a trade fixture, and thus was Adams Outdoor’s personal property.
As a general rule, the value of personal property cannot be recovered in a
condemnation action. Lyerly v. N.C. State Highway Comm’n, 264 N.C. 649, 649-50,
142 S.E.2d 658, 658 (1965) (per curiam). And our holding is consistent with this rule.
To be clear, we do not hold that Adams Outdoor has the right to recover the value of
the physical billboard structure—that is, the value of its personal property—in this
condemnation action. It does not. So we are not saying that the trier of fact should
add the fair market value of the physical billboard structure to the amount that it
determines to be the fair market value of the leasehold interest. But the fact that the
billboard, as a trade fixture, was Adams Outdoor’s personal property does not
preclude the trier of fact from considering the presence of the billboard on the leased
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property in determining the fair market value of the leasehold interest. Again, a
willing buyer and a willing seller would consider the billboard’s presence in agreeing
on a price for the leasehold interest itself. We hold only that the trier of fact may
therefore consider the value that the billboard’s presence adds to the value of that
leasehold interest.
3. The payments from advertisers
“Injury to a business, including lost profits, is [a] noncompensable loss.” M.M.
Fowler, 361 N.C. at 7, 637 S.E.2d at 890. “[R]evenue derived directly from the
condemned property itself, such as rental income,” however, is a proper consideration
in determining the fair market value of condemned property. Id. at 7, 637 S.E.2d at
890.3 Adams Outdoor argues that the lease payments made by advertisers to display
their messages on the billboard should be considered rental income and should
therefore be admissible to help determine the fair market value of the leasehold
interest here. In deciding this question, “care must be taken to distinguish between
income from the property and income from the business conducted on the property.”
Id. at 7, 637 S.E.2d at 890 (quoting 4 Julius L. Sackman et al., Nichols on Eminent
Domain § 12B.09, at 12B-56 to -59 (rev. 3d ed. 2006)).
3 The majority and dissenting opinions in Department of Transportation v. M.M.
Fowler, Inc. agreed that it is proper to consider rental income in determining fair market
value of condemned property. Compare 361 N.C. at 7, 637 S.E.2d at 890 (majority opinion),
with id. at 18, 637 S.E.2d at 897 (Martin, J., dissenting).
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Rental income would obviously include, at the very least, payments received
by a landlord who is renting out residential space in a house or apartment building
or commercial space in an office building. Here, as in those scenarios, Adams Outdoor
was renting out space from its structure—that is, space from its billboard. As with
many residential or commercial leases, moreover, Adams Outdoor would enter into
long-term contracts with particular parties that would give those parties the right to
occupy and use space located on real property—which here meant giving advertisers
the right to occupy and use billboard space on its property. As the trial court found,
Adams Outdoor was therefore earning “substantial rental income from leasing space
on the [b]illboard to advertisers,” and the billboard was “essentially self-operating . . .
rental property.” This rental income is admissible to help the trier of fact determine
the fair market value of Adams Outdoor’s leasehold interest.
4. The permits
“A permit grants a privilege. It does not convey either a constitutional right or
a property right.” Hursey v. Town of Gibsonville, 284 N.C. 522, 529, 202 S.E.2d 161,
166 (1974). The question here, however, is not whether the possession of a permit
confers a compensable property right. Instead, the question is whether evidence of
permits that Adams Outdoor possessed—and that allowed Adams Outdoor to
continue using a nonconforming billboard that had been grandfathered in—is
admissible to help the trier of fact determine the fair market value of the leasehold
interest to which the permits pertained.
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“The jury should take into consideration, in arriving at the fair market value
of the [property] taken, all the capabilities of the property, and all the uses to which
it could have been applied or for which it was adapted, which affected its value in the
market at the time of the taking . . . .” Barnes v. N.C. State Highway Comm’n, 250
N.C. 378, 387, 109 S.E.2d 219, 227 (1959). We have stated that a jury may consider
“the reasonable probability of a change in the zoning ordinance or of a permit for a
non-conforming use.” Northgate Shopping Ctr., Inc. v. State Highway Comm’n, 265
N.C. 209, 212-13, 143 S.E.2d 244, 246 (1965) (citing Barnes, 250 N.C. at 391, 109
S.E.2d at 229-30).
If the reasonable probability of obtaining a permit is admissible, then the
existence of already-issued permits should likewise be admissible. Here, taking
Adams Outdoor’s permits into account makes particular sense given that Adams
Outdoor’s lease permitted it to cancel the lease or to seek rent abatement if Adams
Outdoor was unable to maintain its permits. Evidence of these permits would
certainly help inform the trier of fact about the value of a leasehold interest that
exists solely to maintain and use the very billboard whose use is sanctioned by the
permits. So, for all of these reasons, we hold that evidence of Adams Outdoor’s
permits is admissible to help the trier of fact determine the fair market value of
Adams Outdoor’s leasehold interest.
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5. The automatic extension and the options to renew
As we have already noted, Adams Outdoor’s ten-year lease granted an
automatic ten-year extension followed by optional ten-year renewal periods. We need
to determine whether either of these provisions should be considered by the trier of
fact in assessing the fair market value of the leasehold interest. We will address each
provision separately.
A. The automatic ten-year extension
In United States v. Petty Motor Co., the Supreme Court of the United States
held that, when a tenant has a contractual right to renew its lease, “[t]he measure of
damages” includes “the value of the right to renew” the lease. 327 U.S. 372, 381
(1946); accord Alamo Land & Cattle Co. v. Arizona, 424 U.S. 295, 304 (1976).
Here the automatic ten-year extension provision in Adams Outdoor’s lease was
an even stronger provision than one that guarantees a contractual right to renew.
Under the terms of the automatic extension provision, the lease extension would
occur without Adams Outdoor taking any action—Adams Outdoor did not even need
to exercise a right to renew—and the landlord could not cancel or decline the
extension. Thus, Adams Outdoor essentially had a contractual right to possess the
leased property for twenty years (the initial ten-year term plus the automatic ten-
year extension). The fact that the lease allowed Adams Outdoor to cancel the lease if
one of a small set of specific circumstances arose does not change our analysis. After
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all, even if one of those circumstances arose, Adams Outdoor did not have to cancel
the lease; it could choose not to cancel it and continue to possess the leasehold for the
full twenty-year term.
Because, under Petty Motor, a provision that guarantees a contractual right to
renew is a proper factor for the trier of fact to consider in determining the fair market
value of the leasehold interest, it follows that this automatic extension provision,
which is even stronger in substance, is also a proper factor for the trier of fact to
consider.
B. The optional ten-year renewals
The Supreme Court of the United States has drawn a distinction between a
contractual right to renew, which is compensable, and a mere expectancy in the
renewal of a lease, which is not. See Petty Motor, 327 U.S. at 380 n.9 (“The fact that
some tenants had occupied their leaseholds by mutual consent for long periods of
years does not add to their rights.”). In other words, the mere fact that a tenant had
previously renewed its lease and expected to keep renewing its lease does not create
a compensable property interest in the tenant’s expectation that it would be able to
keep renewing. This expectation “add[s] nothing to the . . . legal rights” of a tenant,
“and legal rights are all that must be paid for.” Id. (quoting Emery v. Boston Terminal
Co., 178 Mass. 172, 185, 59 N.E. 763, 765 (1901)).
As a result, it is not proper for the trier of fact to consider the optional ten-year
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lease extensions, as distinct from the first automatic lease extension, in determining
the fair market value of Adams Outdoor’s leasehold interest. Unlike the automatic
extension, any of these optional extensions could be cancelled at will by either Adams
Outdoor or the landlord, as long as the cancelling party gave the notice specified in
the lease. The lease provision concerning these optional extensions did not give
Adams Outdoor a right to renew the lease, since the landlord could choose not to go
forward with a renewal; the provision created only an expectancy in the renewal of
the lease.
Adams Outdoor argues that, under Almota Farmers Elevator & Warehouse Co.
v. United States, 409 U.S. 470 (1973), its renewal expectancy should be a factor in
determining the fair market value of its leasehold interest. But Almota dealt with a
different issue than the one that we consider here. In Almota, the Supreme Court
addressed whether the likelihood that a lease would be renewed may be factored into
the fair market value of structural improvements built on the leased land. See id. at
473-78. Here, though, the question is whether the mere expectancy of a lease’s
renewal can be factored into the fair market value of the leasehold interest itself.
Under Petty Motor, it is clear that it cannot be. Adams Outdoor’s expectation that it
would continue to possess the leased land and rent space on its billboard on that land,
despite either party’s ability to cancel the optional lease renewals at will, is a mere
expectancy that may not be considered in determining the fair market value of Adams
Outdoor’s leasehold interest.
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Opinion of the Court
6. The bonus value method
As we have already discussed, just compensation for a property interest is the
fair market value of that interest—that is, the price that a willing buyer and a willing
seller would agree on for the sale of that interest. This Court noted in Ross v. Perry
that the typical measure of damages for the taking of a leasehold interest is “the
difference between the rental value of the unexpired term and the rent reserved in
the lease.” 281 N.C. at 576, 189 S.E.2d at 229. The Supreme Court of the United
States adopted a similar calculation in Petty Motor, holding that this calculation
should also include the value of any right to renew the lease. 327 U.S. at 381; accord
Alamo Land, 424 U.S. at 304.
At first glance, the bonus value calculations in Ross and Petty Motor may seem
to conflict with the willing buyer, willing seller approach. On closer inspection,
though, the bonus value method is actually just another way to calculate the fair
market value of the leasehold interest.
Under the bonus value method, “[i]t is generally held that the fair market value
of a leasehold is computed by first determining the fair market rental value of the
premises and then subtracting from that value the amount of rent to be paid for the
remainder of the term pursuant to the lease agreement.” 4 Julius L. Sackman,
Nichols on Eminent Domain § 13.08[6], at 13-72 (3d ed. 2017) (emphasis added).
Whether one is determining the fair market value of a leasehold or the fair market
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Opinion of the Court
rental value of real property underlying that leasehold, however, the property
interest being valued is the same: namely, the right to possess land for a certain
period of time.
But the total fair market rental value of real property will still be higher than
the fair market value of a tenant’s leasehold on that property for the same lease term.
That is because a landlord who rents out real property owns the property in fee
simple. A tenant who sells his or her leasehold to another tenant, by contrast, owes
rent that the other tenant will still have to pay when he or she takes over the lease.
A willing buyer and a willing seller of the tenant’s leasehold will therefore take into
account the rent that is owed under the remainder of the lease when negotiating the
price of the leasehold, and will adjust the price downward accordingly. No such
adjustment is necessary when determining the fair market rental value of property—
that is, the price that a willing tenant and a willing landlord would agree on.
That is why the bonus value method offsets the amount of rent actually owed
under the lease for the remainder of the lease term against the fair market rental
value of the property in question. A willing buyer and willing landlord would not
take that offset into account in negotiating the total price of a lease, so the offset
would not be reflected in that price. But, logically, a tenant who willingly buys a
leasehold from another tenant would agree to pay only to the extent that the value of
the leasehold exceeded what he or she would be paying in rent. Otherwise, he or she
would be compensating the selling tenant for rent that the selling tenant had not yet
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Opinion of the Court
paid under the lease. So the buying tenant would intuitively make that offset. As a
result, the fair market value of a leasehold interest using either the bonus value
method or the willing buyer, willing seller approach should, as a practical matter, be
the same.
In any determination of the fair market value of a given property interest,
however, the jury should consider the same factors that private parties would
consider in the sale of that property interest. Barnes, 250 N.C. at 387, 109 S.E.2d at
227. As we have already discussed, these factors in this case include the billboard,
rental payments, permits, and automatic lease extension. DOT argues that the bonus
value method described by DOT’s appraiser properly measured the value of Adams
Outdoor’s leasehold interest. It did not, though, because the appraiser did not
consider all of the appropriate factors.4
DOT’s appraiser testified that he thought that all of the rights granted through
the lease would be adequately reflected in the rent being paid. Because of this, he
determined the market rental value of the leasehold interest solely by using the rent
specified in two of Adams Outdoor’s other leases for sites near the site of this lease.
But the appraiser’s methodology was flawed for two reasons. First, he did not
4 Eminent domain cases, like many other cases involving specialized knowledge, will
generally require the use of expert testimony. Because the trier of fact will rely on the
specialized knowledge of expert witnesses in eminent domain cases, expert testimony about
fair market valuations should take into account all of the factors that a willing buyer and a
willing seller would consider in valuing a property interest.
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Opinion of the Court
determine whether the nearby leases were truly comparable to Adams Outdoor’s
lease with respect to the rights granted, such as the right of first refusal to purchase
the property and the fact that any successors or assigns of the landlord were bound
by Adams Outdoor’s lease and did not have the ability to terminate it. Second, he did
not account for the value that Adams Outdoor’s specific nonconforming billboard, in
its specific location, and the enhanced rental income that it generated, along with the
permits for the use of that billboard and the automatic lease extension that would
have allowed Adams Outdoor to keep using that billboard, added to the value of
Adams Outdoor’s leasehold interest. By not accounting for these factors, the market
rent that DOT’s appraiser used in his bonus value method calculation did not
properly reflect the fair market rental value of the leasehold interest, leading to a
negative valuation.
Any evidence that does not aid the jury in fixing a fair market value of the land
“may ‘confuse the minds of the jury, and should be excluded.’ ” M.M. Fowler, 361 N.C.
at 6, 637 S.E.2d at 890 (quoting Abernathy v. S. & W. Ry. Co., 150 N.C. 97, 109, 63
S.E. 180, 185 (1908)). In particular, an expert witness must use a “method of proof
[that] is sufficiently reliable.” Dep’t of Transp. v. Haywood County, 360 N.C. 349, 352,
626 S.E.2d 645, 647 (2006). Here, DOT’s appraiser applied the bonus value method
incorrectly, which made his method of proof unreliable. Because of this, DOT’s bonus
value method evidence would confuse the jury and is not admissible.
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Opinion of the Court
III. Conclusion
We conclude that (1) the fair market value provision of Article 9, not Article
11, governs this condemnation proceeding; (2) the value added by Adams Outdoor’s
billboard may be considered in determining the fair market value of Adams Outdoor’s
leasehold interest; (3) evidence of rental income derived from leasing advertising
space on the billboard may be considered in determining the fair market value of the
leasehold interest; (4) the value added to the leasehold interest by the permits issued
to Adams Outdoor may be considered in determining the fair market value of the
leasehold interest; (5) the automatic ten-year extension of the lease may be
considered in determining the fair market value of the leasehold interest, but the
options to renew the lease after the automatic ten-year extension may not be; and
(6) the bonus value method evidence offered by DOT may not be considered in
determining the fair market value of the leasehold interest. We therefore affirm the
decision of the Court of Appeals in part and reverse it in part, and remand this case
to the Court of Appeals for further remand to the superior court for proceedings not
inconsistent with this opinion.
AFFIRMED IN PART; REVERSED IN PART AND REMANDED.
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HUDSON, J., concurring in part, and dissenting in part
Justice HUDSON concurring in part and dissenting in part.
I agree with the majority that Article 9 and not 11 of N.C.G.S. Chapter 136
governs in this condemnation proceeding. I also agree with the majority’s analysis
regarding the permits, the lease extensions, and most of its approach to the bonus
value method. I disagree with the majority’s analysis regarding whether the
billboard and the lost income may properly be considered in the valuation of just
compensation under Article 9. Accordingly, I would affirm in part, modify and affirm
in part, and reverse in part the decision of the Court of Appeals.
Controlling Statutory Scheme
In my view, the Court of Appeals correctly reversed the trial court’s decision
and concluded that Article 11 does not apply here. As noted below, the trial court’s
findings and conclusions were based on the erroneous assumption that Article 11 does
apply. Specifically, the trial court concluded:
3. N.C. Gen. Stat. § 136-131 specifically addresses the
subject matter of the DOT condemning nonconforming
outdoor advertising locations. It provides that in any such
condemnation, just compensation to the owner of the
outdoor advertising shall be measured by the fair market
value at the time of the taking of the outdoor advertising
owner’s interest in the real property on which the outdoor
advertising is located and such value shall include the
value of the outdoor advertising.
....
5. Because the DOT caused the removal of Adams’
nonconforming outdoor advertising property interests at
the CHS Lot by way of condemnation, N.C. Gen. Stat. §
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HUDSON, J., concurring in part, and dissenting in part
136-131 is applicable and controlling in setting the
conditions of measuring just compensation.
6. Although the DOT did not file an action specifically
for the taking of the Billboard structure, its position that
the physical structure of the Billboard and the leasehold
interest are separate and distinct interests which should
be valued separately is contrary to the plain and specific
directives in N.C. Gen. Stat. § 136-131 that just
compensation to Adams shall include the value of the
outdoor advertising.
The trial court’s ruling was based upon a misapprehension of law. Accordingly, I
agree with the majority that remand is necessary for a determination of just
compensation due to Adams Outdoor under Article 9.
Classification of Billboard
Article 9 sets forth the procedures by which the DOT may condemn property,
see N.C.G.S. §§ 136-103 to -121.1 (2015 & Supp. 2016), and provides that when the
DOT condemns an entire tract of land, the measure of damages is “the fair market
value of the property at the time of taking,” id. § 136-112(2) (2015). In determining
the fair market value of condemned property, and therefore the compensation to be
awarded to the property owner, permanent improvements, such as buildings, “must
be taken into account . . . in so far as they add to the market value of the land to which
they are affixed.” Proctor v. State Highway & Pub. Works Comm’n, 230 N.C. 687,
691, 55 S.E.2d 479, 482 (1949); id. at 691, 55 S.E.2d at 482 (“Buildings must be
regarded as a part of the real estate upon which they stand. Indeed, they are
ordinarily without value or utility apart from such realty.”). On the other hand, “[n]o
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HUDSON, J., concurring in part, and dissenting in part
allowance can be made for personal property, as distinguished from fixtures, located
on the condemned premises.” Lyerly v. N.C. State Highway Comm’n, 264 N.C. 649,
650, 142 S.E.2d 658, 658 (1965) (per curiam) (quoting 29 C.J.S. Eminent Domain §
175a(1), at 1045 (1941)), quoted in Midgett v. N.C. State Highway Comm’n, 260 N.C.
241, 249, 132 S.E.2d 599, 607 (1963), overruled on other grounds by Lea Co. v. N.C.
Bd. of Transp., 308 N.C. 603, 304 S.E.2d 164 (1983).
Fixtures, which are objects that are attached to land, are generally treated as
permanent improvements and “understood to be a part of the realty.” Lee-Moore Oil
Co. v. Cleary, 295 N.C. 417, 419, 245 S.E.2d 720, 722 (1978) (quoting Feimster v.
Johnson, 64 N.C. 259, 260 (1870)); see also Fixture, Black’s Law Dictionary (10th ed.
2014) (defining a “fixture” as “[p]ersonal property that is attached to land or a
building and that is regarded as an irremovable part of the real property, such as a
fireplace built into a home”). Whether a fixture is an improvement or remains
personal property can depend upon whether it is installed by the property owner or
a party owning an interest less than the fee, because when a property owner installs
a fixture, “the purpose is to enhance the value of the freehold, and to be permanent,”
but with a tenant “a different purpose is to be served.” Stephens v. Carter, 246 N.C.
318, 321, 98 S.E.2d 311, 313 (1957) (quoting Springs v. Atl. Ref. Co., 205 N.C. 444,
449, 171 S.E. 635, 637-38 (1933)). This is particularly true with trade fixtures, which
are installed for the purposes of exercising a trade and remain the removable personal
property of the tenant. Id. at 320-21, 98 S.E.2d at 312-13; see also Wilson v. McLeod
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Oil Co., 327 N.C. 491, 515, 398 S.E.2d 586, 598-99 (1990) (“[W]hen additions are made
to [the] land by its owner, it is generally viewed that the purpose of the addition is to
enhance the value of the land, and the chattel becomes a part of the land. On the
other hand, where the improvement is made by one who does not own the fee, such
as a tenant, the law is indulgent and, in order to encourage industry, the tenant is
permitted ‘the greatest latitude’ in removing equipment which he has installed upon
the [land].” (internal citations omitted) (quoting Little v. Nat’l Serv. Indus., 79 N.C.
App. 688, 692-93, 340 S.E.2d 510, 513 (1986))). “Whether a thing attached to [the]
land be a fixture or chattel personal, depends upon the agreement of the parties,
express or implied.” Lee-Moore Oil Co., 295 N.C. at 419, 245 S.E.2d at 722 (quoting
Feimster, 64 N.C. at 261); see also Stephens, 246 N.C. at 321, 98 S.E.2d at 312 (“The
character of the structure, its purpose and the circumstances under which it was
erected, the understanding and agreement of the parties at the time the erection was
made, must all be considered in determining whether it became a part of the freehold
or not.” (quoting W. N.C. R.R. v. Deal, 90 N.C. 110, 113-14 (1884))).
Here the trial court found, inter alia:
32. Because of the permanent nature of the Billboard’s
construction including being affixed to the land by a
concrete foundation 18 feet deep and six feet in diameter,
removal and relocation of the entire sign would be
impossible.
....
40. As the Lease states, Adams and C.H.S. Corporation
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HUDSON, J., concurring in part, and dissenting in part
intended the Billboard to be permanently affixed to the
CHS Lot.
41. The Billboard was a leasehold improvement . . . .
Further, the trial court concluded:
8. The property adversely affected by the DOT’s
condemnation is Adam’s [sic] leasehold interest as
improved by the Billboard.
....
11. . . . The Billboard could not be relocated intact due
to the permanent nature of its construction and because
State and local laws prevented such activity. . . .
12. As between the landowner and Adams, the Billboard
was the property of Adams and upon expiration of the
Lease, Adams retained the discretion to salvage its sign
parts. Notwithstanding, the way the Billboard was
constructed and affixed to the land made it a leasehold
improvement, and for purposes of condemnation, the right
of Adams as the tenant to salvage parts cannot be used as
a basis for adversely affecting just compensation.
13. As of the Date of Taking, Adams’ recorded Lease
constituted an interest in real property as improved by a
sign.
I agree with the Court of Appeals that the trial court’s findings and conclusions—that
the billboard was a permanent improvement as opposed to personal property—were
not supported by the evidence and were contrary to law.
It is not disputed that the billboard was erected for business purposes and
therefore is a trade fixture. Looking to the express agreement of Adams Outdoor and
C.H.S. Corporation (CHS), then-owner of the land, the lease provided:
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HUDSON, J., concurring in part, and dissenting in part
All Structures erected by or for the Lessee . . . on the
Property shall at all times be and remain the property of
the Lessee and may be removed by the Lessee before or
within a reasonable time of termination or expiration of
this lease, notwithstanding that such Structures are
intended by Lessor and Lessee to be permanently affixed
to the Property.
It is clear that the intent of the parties was that any structures affixed to the property,
including the billboard at issue here, did not become part of the real property, but
instead remained the removable personal property of Adams Outdoor. Additionally,
as the Court of Appeals noted: Adams Outdoor classified its billboard structures as
“Business Personal Property” for tax purposes and paid property taxes in accordance
with that classification, and Adams Outdoor’s vice president for real estate admitted
that the billboard was personal property. DOT v. Adams Outdoor Advert. of
Charlotte, Ltd. P’ship, ___ N.C. App. ___, ___, 785 S.E.2d 151, 157-58 (2016).
Moreover, in considering the “[t]he character of the structure, its purpose and
the circumstances under which it was erected,” Stephens, 246 N.C. at 321, 98 S.E.2d
at 312, the billboard, unlike a building or other permanent improvements, is not
“without value or utility apart from [the] realty,” Proctor, 230 N.C. at 691, 55 S.E.2d
at 482. As the Court of Appeals pointed out, Adams Outdoor in fact “removed the
billboard and structure from the CHS Lot by carefully dismantling them and
reinstalling major components thereof at another billboard location along
Independence Boulevard, as permitted by the lease agreement.” Adams Outdoor, ___
N.C. App. at ___, 785 S.E.2d at 157. Nor was the billboard erected to “enhance the
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HUDSON, J., concurring in part, and dissenting in part
value of the freehold, and to be permanent.” Stephens, 246 N.C. at 321, 98 S.E.2d at
313. Rather, as the majority notes, “Adams Outdoor’s billboard was attached to the
land for the purpose of conducting an outdoor advertising business.” The billboard
was intended to last only until Adams Outdoor decided to remove it, or for as long as
the lease itself, which could be terminated at Adams Outdoor’s discretion if and when
one of the circumstances enumerated in the agreement made the advertising business
unprofitable.1 Accordingly, the billboard was a trade fixture that remained the
personal property of Adams Outdoor.
While explicitly agreeing that the billboard was personal property, the
majority nevertheless deems it appropriate in determining the value of the leasehold
for the trial court to consider the “inherent value of the billboard’s presence on the
property.” But, pursuant to the agreement of the parties, this particular billboard’s
1 The lease’s cancellation provision reads:
CANCELLATION: If, in Lessee’s sole opinion: a) the view of the
advertising copy on any Structure becomes obstructed; b) the
Property cannot be safely used for the erection, maintenance or
operation of any Structure for any reason; c) the value of any
Structure is substantially diminished, in the sole judgment of
the Lessee, for any reason; d) the Lessee is unable to obtain,
maintain or continue in force any necessary permit for the
erection, use or maintenance of any Structure as originally
erected; or, e) the use of any Structure, as originally erected, is
prevented by law or by exercise of any governmental power; then
Lessee may, at its option, either: (i) reduce and abate rent in
proportion to the impact or loss that such occurrence has upon
the value of Lessee’s Structure for so long as such occurrence
continues; or, (ii) cancel this Lease and receive a refund of any
prepaid rent, prorated as of the date of cancellation.
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HUDSON, J., concurring in part, and dissenting in part
“presence on the property” was not bound to the lease, as Adams Outdoor specifically
contracted for the right to remove it as personal property. See Ingold v. Phoenix
Assurance Co., 230 N.C. 142, 145, 52 S.E.2d 366, 368 (1949) (“[T]he intent of the
parties as evidenced by their contract, express or implied, is controlling.”). Moreover,
as the majority itself then explains, the value of the billboard consists entirely of its
potential to produce income, “that is, from the potential to rent it out to advertisers.”
As discussed more fully below, I do not view this potential as compensable under
Article 9, and therefore conclude that this “value” should not be considered in
determining the fair market value of Adams Outdoor’s leasehold interest.
Accordingly, I disagree with the majority and would affirm the Court of Appeals on
this issue.
Loss of Income
I also disagree with the majority’s Article 9 analysis regarding the
consideration of the income from the advertising business located on the billboard.
Historically, this Court has not considered business income in determining just
compensation in a condemnation action.2 The majority, citing M.M. Fowler, states
2 When U.S. Supreme Court Justice Oliver Wendell Holmes served on the Supreme
Judicial Court of Massachusetts, he explained, in a passage often quoted by this Court, see
Pemberton v. City of Greensboro, 208 N.C. 466, 470, 181 S.E. 258, 260 (1935); Williams, 252
N.C. at 148, 113 S.E.2d at 268; DOT v. M.M. Fowler, Inc., 361 N.C. 1, 8-9, 637 S.E.2d 885,
891 (2006), that
[i]t generally has been assumed, we think, that injury to a
business is not an appropriation of property which must be paid
for. There are many serious pecuniary injuries which may be
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HUDSON, J., concurring in part, and dissenting in part
that “care must be taken to distinguish between income from the property and income
from the business conducted on the property”; however, the majority then proceeds
to misapply this very principle. DOT v. M.M. Fowler, Inc., 361 N.C. 1, 7, 637 S.E.2d
885, 890 (2006) (quoting 4 Julius L. Sackman et al., Nichols on Eminent Domain, §
12B.09, at 12B-56 to -59 (rev. 3d ed. 2006)). In my opinion, the revenue from
advertisements placed on the billboard is business income, and is not equivalent to
rental income received for the use of the land. In holding to the contrary, the majority
relies solely upon M.M. Fowler, but in my view, the majority’s conclusion is difficult
to square with our Court’s decision in M.M. Fowler. As such, I dissent on this issue
as well.
inflicted without compensation. It would be impracticable to
forbid all laws which might result in such damage, unless they
provided a quid pro quo. No doubt a business may be property
in a broad sense of the word, and property of great value. It may
be assumed for the purposes of this case that there might be such
a taking of it as required compensation. But a business is less
tangible in nature and more uncertain in its vicissitudes than
the rights which the Constitution undertakes absolutely to
protect. It seems to us, in like manner, that the diminution of
its value is a vaguer injury than the taking or appropriation with
which the Constitution deals. A business might be destroyed by
the construction of a more popular street into which travel was
diverted, as well as by competition, but there would be as little
claim in the one case as in the other. It seems to us that the case
stands no differently when the business is destroyed by taking
the land on which it was carried on, except so far as it may have
enhanced the value of the land.
Pemberton, 208 N.C. at 470, 181 S.E. at 260 (citations omitted) (quoting Sawyer v.
Commonwealth, 182 Mass. 245, 247, 65 N.E. 52, 53 (1902)).
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HUDSON, J., concurring in part, and dissenting in part
Most recently we addressed lost business income in the context of a
condemnation action in M.M. Fowler, in which we stated that “[t]he longstanding rule
in North Carolina is that evidence of lost business profits is inadmissible in
condemnation actions.” 361 N.C. at 7, 637 S.E.2d at 891 (citing Pemberton v. City of
Greensboro, 208 N.C. 466, 470-72, 181 S.E. 258, 260-61 (1935)). More specifically, the
Court held in M.M. Fowler that:
Admission of evidence that does not help the jury calculate
the fair market value of the land or diminution in its value
may “confuse the minds of the jury, and should be
excluded.” In particular, specific evidence of a landowner’s
noncompensable losses following condemnation is
inadmissible.
Injury to a business, including lost profits, is one
such noncompensable loss. It is important to note that
revenue derived directly from the condemned property
itself, such as rental income, is distinct from profits of a
business located on the property. . . . When evidence of
income is used to valuate property, “care must be taken to
distinguish between income from the property and income
from the business conducted on the property.”
Id. at 6-7, 637 S.E.2d at 890 (citations omitted). Accordingly, there is a distinction
between “revenue derived directly from the condemned property itself, such as rental
income,”3 and revenue from “a business located on the property.” Id. at 7, 637 S.E.2d
at 890. The latter was at issue in M.M. Fowler when the landowner “attempted to
3 Although the trial court’s order refers to “rental income” from the billboard, it
appears that the court is actually referring to business revenue received by Adams Outdoor
from entities placing ads on the billboard. For condemnation purposes, the only “rental” paid
here was by Adams Outdoor to CHS to lease the land on which to place its billboard.
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HUDSON, J., concurring in part, and dissenting in part
recover for harm to its business rather than damage to the land itself.” Id. at 7, 13,
637 S.E.2d at 890, 894.
Regarding lost profits from a business located on the property, the Court held
that quantified evidence of lost business profits was inadmissible to determine the
fair market value of the land. Id. at 14-15, 637 S.E.2d at 895. In discussing our prior
decision in Kirkman v. State Highway Commission, 257 N.C. 428, 126 S.E.2d 107(1962), the Court opined:
Kirkman clearly does not permit quantified evidence of lost
business profits. There is no difference between using lost
profits to determine the fair market value of the land and
awarding them as a separate item of damages. By either
improper calculation, the business receives compensation
for its lost profits.
Thus, in Kirkman, we did not approve the use of
quantified evidence of lost profits. To the contrary, this
Court held unquantified lost business profits are a fact that
can be generally considered in determining whether there
has been a diminution in value in the land that remains
after a partial taking. Our decision in Kirkman must be
read with our other cases, which clarify that although the
jury may consider adverse effects resulting from
condemnation that decrease the value of the remaining
property, these effects “are not separate items of damage,
recoverable as such, but are relevant only as circumstances
tending to show a diminution in the over-all fair market
value of the property.” Allowing the jury to consider that
the land may be less valuable due to the condemnation’s
effect on the landowner’s business does not require
quantified evidence of lost profits also be admitted. This is
an important distinction which unifies our analysis in both
Kirkman and Pemberton. Neither opinion sanctions
admission of quantified lost profits evidence.
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HUDSON, J., concurring in part, and dissenting in part
Id. at 14-15, 637 S.E.2d at 895 (citations omitted). Notably, M.M. Fowler involved a
partial condemnation, as opposed to a condemnation of an entire tract; however, it
appears that while quantified evidence of lost profits from a business located on a
property is inadmissible, unquantified evidence of those profits may be “broadly” or
“generally” considered in determining the fair market value. Id. at 14-15, 637 S.E.2d
at 895.
Here the revenue received by Adams Outdoor from advertisers to display
advertisements on the billboard was not rental income derived directly from the
property, but rather business profits from an advertising business located on the
property. Adams Outdoor is attempting “to recover for harm to its business rather
than damage to the land itself.” Id. at 7, 13, 637 S.E.2d at 890, 894. The contracts
between Adams Outdoor and its advertisers are not contracts for others to personally
occupy and enjoy the real property, but rather for the advertisers to attach their
personal property advertisements to Adams Outdoor’s personal property, which is
attached to the real property for the sole purpose of operating a business. Moreover,
unlike the real property that was taken by DOT, this business is not intended to last
forever, but only so long as it is profitable. See footnote 1. In my view, the revenue
Adams Outdoor received from this business conducted on the property is too
attenuated to be considered “revenue derived directly from the condemned property
itself.” Id. at 7, 637 S.E.2d at 890.
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DEP’T OF TRANSP. V. ADAMS OUTDOOR ADVERT. OF CHARLOTTE LTD. P’SHIP
HUDSON, J., concurring in part, and dissenting in part
I am unable to conclude, as the majority does, that Adams Outdoor’s renting
of billboard space is analogous to the renting of residential space in a house or
apartment building, or commercial space in an office building. Houses, apartment
buildings, and office buildings are permanent improvements and considered part of
the real property itself—tenants of those buildings contract for the right to occupy
and use some part of that real property. As previously discussed, the billboard here
is not part of the real property, but rather is personal property belonging to Adams
Outdoor.
Accordingly, the revenue that Adams Outdoor seeks to have considered is lost
business profit. Under M.M. Fowler quantified evidence of this revenue may not be
considered; however, unquantified evidence of Adams Outdoor’s lost business profits
may be “broadly” or “generally” considered in determining the fair market value of
the leasehold interest. Id. at 14-15, 637 S.E.2d at 895. The Court of Appeals correctly
determined that the revenue was lost business profit but did not acknowledge that
Adams Outdoor’s lost business could be considered more generally as unquantified
evidence. Thus, I would modify and affirm the decision of the Court of Appeals on
this issue.
The Permits, Lease Extensions, Bonus Value Method
The grandfathered permits allowing Adams Outdoor to operate a billboard
(otherwise nonconforming) specifically enabled Adams Outdoor to station its personal
property and conduct its business in a manner and location that would not otherwise
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DEP’T OF TRANSP. V. ADAMS OUTDOOR ADVERT. OF CHARLOTTE LTD. P’SHIP
HUDSON, J., concurring in part, and dissenting in part
be legally possible. Accordingly, I agree with the majority that evidence of Adams
Outdoor’s permits is admissible in determining the fair market value of the leasehold
interest. I also agree with the majority’s analysis concluding that the automatic ten-
year extension of the lease is a proper factor for consideration in determining the fair
market value of Adams Outdoor’s leasehold, and that the subsequent optional ten-
year extensions are too speculative to consider. Additionally, I agree with the
majority’s analysis regarding the bonus value method; I note only that, because I
disagree with the majority’s analysis regarding the consideration of the billboard and
the advertising revenue, I disagree with which factors would constitute the
“appropriate factors.”
Conclusion
For the reasons set forth herein, I respectfully concur in part, and dissent in
part.
Justices BEASLEY and MORGAN join in this concurring and dissenting
opinion.
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